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CBS Corp. stock downgraded

Analyst says upfront ad rates 'out of whack'

NEW YORK -- CBS Corp. shares have been getting a lot of Wall Street love lately, but one analyst downgraded them Thursday, citing concerns that they have run up too much on overly optimistic upfront expectations.

Caris & Co. analyst David Miller downgraded the stock to "below average" and maintained his price target of $6.

"The stock has gotten ahead of itself based on current fundamentals, particularly with regard to the upfronts, as high levels of chatter keep flying around that CBS will win meaningful (ad rate) increases from media buyers," he said. "In addition, we are concerned about the long-term viability of CBS' TV station business, a business facing a myriad of secular challenges that peers Viacom and Disney largely do not have to deal with."

Miller had upgraded CBS at $3.83 back on March 17 when, he said, "deep-value investors had the opportunity to pick up a liquid, bellwether media name with an equity value reflecting only the Showtime asset."

After a 27% gain in the stock price, he continued to continued to like the stock, arguing the market "was not affording intrinsic value to the CBS network at the time."

When the stock hit $6.18, he retreated to an "average" rating position "as we felt CBS was more or less trading in line with its organic growth rate," Miller said.

But expectations on upfront ad rates are now "out of whack with reality" as CBS shares have continued to climb, he suggested Thursday. "Despite CBS' view that it will extract (upfront) CPM increases out of advertisers this year, we do not believe that to be realistic," Miller argued, predicting "at best, flat CPMs on (ad sales) volume down roughly 6% year-over-year."

The Caris analyst also highlighted the weak U.S. auto industry that has reduced its ad spend and growing online news consumption.

"We now call in to question the validity of the owned and operated TV station argument," he said. "CBS management maintains that it needs the O&Os in the large markets as a branding mechanism and as a revenue generator for retrans consent, but given the macro back-drop, it is questionable whether the cable (operators) will be able to pass on retrans fees to consumers."